I don’t detect much feeling of urgency. This is a once-in-30-year change. These things always take longer than people think.”
This view of a train company managing director is widely shared.
“Someone is presiding over failure, and being paid a lot of money to do so. They think they know everything, have nothing to learn, and tell us world-class rhubarb,” says another industry leader.
“I’m not sure there is a consensus that GBR is the answer to the problems. And what is, in all but name, a new Government will not be tied to the same choices as the previous one.”
Alistair Lees, managing director of ticket retailer Assertis and chairman of the Independent Rail Retailers trade body, agrees: “To everybody, the Great British Railways Transition Team appears to be moving too slowly. It’s 16 months since the Williams-Shapps Plan for Rail was produced, and it is still not clear where we are going or when we are going to get there.”
There is a sense of drift on the railway, not helped by a season of political drift as a new Prime Minister was chosen. Notwithstanding the long, hot summer of damaging strikes, it is difficult to imagine railways being anywhere near the top of any government agenda.
Around the Cabinet table, it’s safe to say that the Secretary of State for Transport will not merit a place directly opposite the new Prime Minister. Or anywhere close. Health, defence, social welfare and education all stand higher up the priority list.
With the cost-of-living crisis likely to dominate the news agenda through the autumn and winter, the only real pressure on transport will be to trim Treasury spending wherever possible. We have already been told that fares will not rise next year by the usual RPI+1% formula, as that would have produced a politically unpalatable largest increase since privatisation. We also know that any increase will be delayed from January until March. But while welcome for passengers, it will further squeeze the Government’s railway revenue.
The most recent meeting of the RailReview editorial board expressed frustration at the apparent lack of progress being made by the GBR Transition Team. As board chairman Sir Michael Holden puts it: “If I was in charge, I would not be investing in rail. I don’t think the time is right. So, we need to get our own house in order if we are to escape from more drift and decay. The question is: what can the railway do to kick-start its own revival that does not require government intervention?”
Progress is certainly slower than when the present system was created, in the 1990s.
“Privatisation went from start to finish in four years,” says Rufus Boyd, programme director, passenger and freight services at GBRTT. “From appearing in the 1992 Government manifesto to being done and dusted in 1996. Quite a feat.
“It’s clear to me that it is easier to break something up than it is to glue it back together again, especially when the shape will be slightly different.
“In the 1990s, we had a command-and-control rail network, where recalcitrant managers could be ordered to fall into line with the new structure. This time, the people we are getting to reassemble have real stakes in the game - not just personal responsibilities to protect, they have equity in a very real sense.
“You must also understand how much the context has changed in the past couple of years. COVID was huge - much bigger than was widely understood, even now, on the railway. That huge hit on our revenue made our case for GBR both stronger and more difficult, because it brought Treasury interest to a heightened level.
“The Ukraine war, inflation, Brexit and the long-term effect of COVID have created a storm. This is the background to what we are doing, and it must have an impact on expectations.”
So, is the political eye well and truly off the railway ball? The television and social media war of words between RMT General Secretary Mick Lynch and Transport Secretary Grant Shapps would suggest otherwise - the union has sought to move an industry pay-and-conditions dispute onto a national political footing, with considerable success.
“We anticipated that railways would not touch the sides of the political debate over who would be the next Prime Minister,” says Boyd.
“In fact, it did. It was clear that if you took a Tory hustings to the North, people would talk about levelling up. Transport is the area in which people can talk about levelling up most clearly. GBRTT will be a key part of levelling up.”
“Of course, that may never be,” counters Alistair Lees.
“I can see Government having entirely different legislative priorities, and I don’t see a Transport Act being one of them. With the cost-of-living crisis, even the Ukraine war is slipping down the order. And the Conservatives will want to give parliamentary time to things connected with maintaining their majority at
the next election - quite obviously their focus will be on votes, and transport is rarely a feature in that.
“Plus, Williams-Shapps is closely tied with what will be seen as a previous regime. The railway is good at quietly binning reports, and I am hearing hints of that from multiple sources.
“We really need something like GBR. We need direction, we need strategy, we need vision. We have a really good opportunity to reset rail, and it isn’t happening. Yes, there is work going on by people I like and respect in GBRTT. But I have little idea what these 200 staff are actually doing. It feels like inward navel-gazing.
“At the time of greatest need, it feels like a let-down. Fundamentally, we need an organisation that can move fast.
“Yes, you need a debate about principles first, but we are losing vast amounts of time to that. Is this delivering for passengers? I think not. It is not starting with: ‘How can I deliver something great for customers?’ This has nothing to do with customers at all.”
What is happening right now?
“Progress is being made,” says Andy Bagnall, chief executive of Rail Partners, the small lobbying and advocacy organisation spun out of the Rail Delivery Group.
“A huge amount has been done since the White Paper. There are steps being taken to realise the vision. But we need to acknowledge the impact of events: the new political leadership, the industrial action, and all the things that distract Government.
“When you have political transition, it makes things harder. The way Government stepped in during the pandemic has also blurred accountabilities. It has thrown up questions about who is responsible for what. The union action has further highlighted this.
“The evidencing of what makes value for money is more onerous than when we were taking decisions as private companies about how our own investment and revenue were involved.
“There are two sets of decision-makers: the Department for Transport will take through the legislation, and GBRTT is doing the planning. It is less visible to a lot of people, but I can assure you a lot of work is going on, anticipating the legislation.”
Lees asserts that “train operating companies are the living dead” adding: “I have no idea why they have been reconstituted this way. In March 2020, it took just two weeks for all of them to collapse. Since then, we have had EMAs, ERMAs and now NRCs - too many acronyms - but essentially, they are just replicating the previous train operators with the revenue risk removed, even though four of the big ones are run by Government anyway. As a taxpayer, why am I paying for this inefficiency?
“This is not a recipe for getting us out of the mess we are in. That will only be achieved by generating more revenue. You can mess around all you want with costs, but you’re not really going to get rid of more than perhaps £1 billion of cost unless you start cutting large amounts of train services. On the other hand, the revenue line reached £10.9bn just before COVID. That’s not a natural ceiling, and it was based on overall seat occupancy of about a third. The industry should be focusing on that.
“We have just managed to bring Uber to the market. They have big ambitions. They have two million people using their apps. Their reach is really good. A lot of those people will be non-rail travellers. We haven’t got a coherent offer to give them, which is really frustrating.
“There are times of day, days of the week, geographical areas with capacity. The Uber app could do something really exciting with that.
“But where are the incentives? If there was more commission for targeting particular things that generated marginal revenue, filling empty seats, that would all be cream on top for the industry.
“But GBRTT is a silo, an ivory tower that isn’t talking to other people. And it tells us the data about empty seats is commercially confidential, instead of using that data to sell those empty seats.
“GBRTT is populated entirely by Network Rail and TOCs. Where are the retail and tech suppliers in their expert staff? Where are the people who can release big data?
We should look at what people are researching, not just what they actually buy. We process half a million journey requests a day: we are quite small. We know what people are searching for, when they are searching and when they want to travel. We should be using all these expressions of interest to influence how we arrange capacity. There are tools to sell empty seats. What we need are tools to incentivise organisations to sell that marginal capacity. These are not free things to do, but they are not costly.”
Freight
Rail’s freight businesses work to a different agenda. While the Treasury ploughed billions into passenger services, freight was not supported by emergency measures.
What the freight companies crave is certainty. Certainty of train paths, certainty of regulation, certainty of an industry structure that enables their shareholders to invest.
“The Treasury ploughed between £15bn and £20bn into the industry to keep it running,” says John Smith, the ever-outspoken head of GB Railfreight.
“Everyone was paid, even though the passenger service was halved. Then people went on strike for more money. I think that has caused momentum within the Treasury that they should not throw more money at the railway.
“And in that context, I think there is some uncertainty in Government about what GBR actually achieves, not least in terms of private sector involvement. Clearly, with passenger revenue now sitting on the Treasury’s books, there is very little incentive within the train operating companies to seek private investment or to drive the revenue up. That is reflected in the disputes that are taking place.
“The culture gap between the passenger operators and the freight operators is now getting wider. I despair at the revenue not being accountable to the companies which live or die by their ability to generate money.
“We’re spending our largest ever sum: £150 million on bi-mode Stadler locomotives - the next step to decarbonisation. To stimulate that sort of money at board level, I need stability.
“I need to protect our relationship with Network Rail, or whatever it becomes. The commercial interface between us and them, defined by legislation, is hugely important. Having clarity of capacity, and how we are charged according to performance regimes, enables my shareholders to choose whether or not to invest.
“When things like strikes get in the way of that, we have to be certain of being compensated if services we have been promised do not happen. We have to fight very hard to make sure that is retained.”
Developing new freight markets is arguably more challenging than passenger operators adjusting services to emphasise leisure travel.
GBRf has recently started carrying Coca-Cola from a bottling factory in Tilbury to Wakefield, replacing road haulage. It is essential that the cargo is loaded by forklift truck, for which standard containers are unsuited. With Maritime Transport, GB Railfreight has bought 50 containers and modified the floors, so that Coke bottles can be driven in and out, much as curtain-side road lorries are loaded.
“People are getting serious about the green agenda,” says Smith. “Rather than greenwashing, they’re willing to pay for the lift onto rail and the lift off it to a warehouse, instead of just using a door-to-door lorry.
“There is a bit of momentum, and it’s that sort of thing that GBR must be structured to encourage.
“At the moment, we are buoyant. We are seen as industry-leading. Rail freight is in a good place. When I started at Felixstowe, there were 12 trains in and 12 out. Today, it is 38 each way. I’m asking Network Rail how we can cater for 50. Or even 60. Can we get parcels back onto rail? Yes, we can. Can we get internal intermodal? We’re on it.
“I know what comes with a nationalised industry, because I grew up with it. It will not be employment. It will not be growth. It will be a reversion back to the machinery of negotiation and consultation.
“Certainly, GBR has its positives. I’m not sure I buy into it all. We just want to run services. We want access to the network and we want green signals. We want the new structure to encourage us to add business, and not get in the way of it.”
Remedies
Recovery from COVID has swung the railway in a new direction. Through a sweltering summer, Bournemouth beach has been crowded, with packed platforms at the station and leisure passenger numbers above pre-pandemic levels. But the commuter season tickets that paid South Western Railway’s bills have not returned - Monday to Friday peak travel into London is resolutely stuck at 53% of what it was before.
“Clearly, there is a need to get every passenger we can back on board,” says Andy Bagnall. “We have to look at the growth areas and work on them. Hybrid working is here to stay.
“We looked at the difference between those operators that have some form of revenue incentive, compared with those that don’t. It was clear to us that the private sector’s commercial instinct helped drive better outcomes for those that had a stake in revenue recovery.
“The National Rail Contracts have within them dormant provisions for revenue incentives. We need to be having conversations now with the Department so that we can turn on those incentives to re-grow the railway.”
But where is that incentive, now that Government is taking all revenue risk? What’s in it for the train companies beyond following instructions correctly and collecting a fixed reward?
What we used to call franchises have become an awkward mix of contracts, largely treading water while the economy is buffeted, and while we await a longer-term solution to be invented.
“We need a system that is responsive in the short-term immediate-post-pandemic circumstances,” says Bagnall.
“Operators are efficient - they will control costs anyway - but commercial companies need to take risk by innovating, believing they will get a return on their ideas. There must be a form of revenue incentive. Longer term, we have to get the system right - get the design and culture of GBR right.”
GBRTT’s Rufus Boyd: “The problems aren’t going away. The cost base was OK when the money was rolling in, but it looks less comfortable now the revenue line is 15%-20% below what it was pre-COVID.
“Even if it isn’t on the Prime Ministerial agenda through the autumn, it will be on the Treasury agenda.
“We do have some specific duties on revenue growth: the ‘book with confidence’ scheme and the ‘get back on track’ scheme were really important statements of the industry working together.
“But until we have franchising authority with the passage of the Bill through Parliament, it is difficult for us to be the ‘guiding mind’. We all look forward to an invigorated and energised train operating community. A lot of them have said they struggle under the current rules, but that also means we are pretty much aligned when it comes to the future.
“There are some big programmes. The fares, ticketing and retail change programme is funded at £360m, largely with our help. Leadership from within GBRTT, with Stuart Fox-Mills seconded from Abellio, a big hitter from that group. We have a clear pathway to achieving the things laid out in the White Paper around inconsistent retail experiences, out-of-date magnetic stripe tickets in a digital world. And extension of pay-as-you-go, not just in London, but also in the North.
“There is no reason at all why that should not go full steam ahead, subject to a business case for the individual components. And it benefits from our leadership.”
John Smith warns: “I am very worried that the change in industrial relations will put back any culture change by five or ten years.
“There is true hatred out there. I’ve talked with passenger railway staff who despise their leadership. People who you might expect to be middle-of-the-road are saying they would be willing to strike for a month. Whatever your personal perspective, that is a very bad state of affairs.
“We’ve spent 22 years creating an environment where our staff feel loyalty towards the business, where they know that their pay and the welfare of their families depends on the success of how we all work together. For me, and my relationship with Network Rail, I very much worry that the day job is being messed up.”
From the passenger side of the divide, Alistair Lees agrees: “The industry has to deliver reliability because that’s what gets people through the door. That means solving the industrial relations problems. And making Sunday a normal working day is part of that. Some of the solution will be politically unpalatable because it involves compromise and it costs more money, but no other business would survive being run the way ours is.”
There’s more trouble ahead, with a deep recession forecast. Deep-sea freight is usually one of the first indicators… and the peak arrival period for Christmas stock is September and October.
“We are seeing half-full container trains,” says Smith. “There’s not a lot coming out of the docks at the moment. The current drop-off is because the warehouses are full. People aren’t buying discretionary goods. They’re buying the loaf of bread, but not the barbecue. A lot of goods are sitting in warehouses beside the M1 motorway.”
“Getting the strategy clear, including decarbonisation and a strategy for freight growth, are all building blocks to getting John and his shareholders feeling comfortable,” responds Rufus Boyd.
“It’s the absence of a strategic purpose that worries people. If we could turn on a sixpence and sort everything, then we could also turn on a sixpence and change our mind.
“The ‘noises off’ that he needs to be comfortable about are that the legislation will create something he can live with.”
Managed decline?
Are we in managed decline? Plenty of train operators think that is the situation in 2022.
“We are not in managed decline,” quipped one industry leader. “We are already in unmanaged decline.”
Train operators are cutting costs, as ordered by the Department for Transport. In the case of South Western Railway, that means not attempting a return to the 2019 timetable, because peak commuter numbers do not justify it and because it currently has insufficient rolling stock. The fleet of 90 new Class 701 Arterios are three years late and still not fit for duty.
Network Rail’s union-challenged reforms are also substantially about cutting the cost and inefficiency of maintenance.
“I don’t think we are in managed decline,” says Andy Bagnall. “But the railway stands at a fork in the tracks. If we take the wrong fork, then managed decline is absolutely a possibility. We could face cost pressures that prevent us from re-growing the patronage in the way we all want to. We could be in a position where the only way to balance the books is through service cuts, which in turn make the railway less attractive.
“We are not there yet. If we take the right decisions about the cultural ethos of GBR, decisions about the right contractual model, and take short-term decisions that will make the railway attractive right now, we can still get back.
“The Government is facing a choice. And the members I represent are seeking to persuade it towards the right choice.”
Alistair Lees : “We are in danger of managed decline. We have not quite entered it yet, but reduced frequency makes many journeys less attractive. Connections become longer. Strikes make people drive instead. Lose them, and it is hard to win them back.
“Electric cars are the next existential threat, after COVID. While rail is really slow, electric cars are coming at pace.
“No one in the car industry has sat around waiting for the rules to change. Electric cars will turn up and eat the industry’s lunch. Because once you’ve swallowed the purchase cost, they are really cheap to run, so you run them more. For a family of four to go from London to Edinburgh and back again works out at about £10 a person in electricity.
“That’s why I worry about all this GBRTT inward-looking contemplation. We have a real need for speed.”
“It is unhelpful to have multiple voices,” says GBRTT’s Rufus Boyd. “That just plays into the line that the rail sector cannot manage its own business.
“The Government has to play a bad hand. You would not want the hand it has been dealt. It has distracted from rail. But however difficult it is for GBRTT, we must not give up on it. The commentariat are starting to despair a little. This is about resilience, about keeping going, keeping everyone as closely aligned to the programme as possible.
“For us, the inflation problem has bled into industrial relations. That is the hot issue. Can it blow us off course? I don’t think so. But it is not a good use of our efforts to have a long-running dispute. It just makes everything difficult.
“It also makes the case for GBR. The Secretary of State should not be digging into the detail. It needs people it can trust to do that. That is why I think GBR is attractive in all circumstances.”
Bagnall says that the key test comes this autumn: “It has been difficult for decisions to be taken, right across Government, over the summer and while new people settle into new roles.
“I think if we get to Christmas without a response to the market engagement, without the next stage in the legislative process, then you could say progress has stalled.
“At this point, I can tell you there has been some progress, given the unexpected impact of external events. But this autumn is the critical period.”
“I am in favour of GBR,” says Alistair Lees. “My beef is not with the concept, but with the speed of it, and its failure to look outwards. It doesn’t involve suppliers at all, really. GBRTT doesn’t have a monopoly on knowledge, but it’s behaving as if it does.
“This isn’t how I want to feel. I feel like I am being listened to politely, but nothing more: suppliers and innovators are not being taken seriously. There are 200 people in GBRTT. There are 150,000 people in this industry who are not in GBRTT. They want to deliver every day, whether they are drivers, conductors, train operating company managers or suppliers. They don’t all agree with each other, but the one thing they all have in common is that they are frustrated.”
Lees concludes: “It feels like 2022 is a fight for the soul of the railway. Workers versus managers. Treasury versus professionals. Centralise or decentralise? Different groups are in conflict. And it doesn’t feel like any of them are thinking of the customers anymore.”
